Mortgage experts reveal how overpaying could save thousands

With half of new first-time buyer mortgages now extending beyond 30 years, it might seem like a smart idea to pay off your mortgage as quickly as possible. However, since most mortgage providers impose limits on how much you can overpay each year, it may not always be the best option.

To help homeowners, Barratt Homes has teamed up with mortgage expert and Group Managing Director at The New Homes Group, Terry Higgins, to offer guidance on whether overpaying your mortgage is the right choice.

Barratt also surveyed 500 homeowners to find out whether they are planning to overpay and whether they feel financially able to do so.

Key findings:

• 28% of Brits are currently overpaying on their mortgages, while 50% have never paid more than their standard monthly repayment
• This is despite 54% of respondents saying they feel financially able to overpay
• 25% of Brits believe they’ll be mortgage-free by the age of 60–69, while 8% think they’ll still be paying off their mortgage into their seventies

What are the benefits of paying off my mortgage early?

There are many advantages to paying off your mortgage early, as Terry explains:

“Overpaying your mortgage can be a smart move if you have the money to do so. It helps reduce your mortgage balance while also cutting down on the total interest you’ll pay over the life of the loan.

“For example, take someone with a £200,000 mortgage at a 5% interest rate over 25 years. Paying just an extra £50 a month could save around £8,000 in interest and shorten the mortgage term by one year and ten months.

“Increase that overpayment to £200 a month, and you could repay the mortgage in 19 years, saving over £30,000 in interest.”

Are there any downsides to overpaying your mortgage?

While generally a great idea, there are a few things to watch out for before overpaying.

Terry explains:

“Most mortgage providers will charge an Early Repayment Charge (ERC) if you exceed your agreed limit. While most lenders allow you to overpay up to 10% per year penalty-free, always check with your provider to understand your specific terms.

“It’s also worth considering any other high-interest debts, such as credit cards or personal loans, before prioritising mortgage overpayments. You don’t want those debts eating into your savings for too long.”

Should I put money into savings or overpay on my mortgage?

Deciding between saving and overpaying your mortgage depends on your financial goals, interest rates, and current situation.

Terry advises:

“If your mortgage interest rate is higher than what you’d earn from a savings account, overpaying may save you more in the long run. It reduces the total interest you’ll pay and can help you become mortgage-free sooner.

“However, if your mortgage rate is low and you don’t yet have an emergency fund (typically 3–6 months of living expenses), it may be more sensible to focus on saving first. A savings buffer offers flexibility and protection in case of unexpected costs.

“A balanced approach can also work well: build up a basic savings buffer, then consider regular or occasional mortgage overpayments, depending on what your lender allows without triggering an ERC.”

How do I know if paying off early is a good idea?

Paying off your mortgage early can offer peace of mind and significant interest savings but it’s not a one-size-fits-all solution.

It could be a good idea if:

• You’re not subject to hefty ERCs
• You’ve already built up an emergency fund
• You’re not carrying high-interest debt (e.g., credit cards)
• You’re confident you won’t need the funds for other major expenses

However, if repaying early means draining your savings, losing out on investment growth, or incurring charges, it may not be the most financially efficient route.

Speak to a mortgage advisor or financial planner to explore your options and weigh the opportunity cost of early repayment against other uses for your money.

Should I switch to an offset mortgage?

An offset mortgage can be a smart option for the right borrower. It links your mortgage to a savings account, and instead of earning interest on your savings, the balance is offset against your mortgage, reducing the interest charged.

For example, with a £200,000 mortgage and £20,000 in linked savings, you’ll only pay interest on £180,000. This can lead to significant savings and may allow you to repay your mortgage earlier.

Offset mortgages are especially useful for those with substantial savings or irregular income, such as the self-employed. They also offer flexibility your savings remain accessible, so you don’t sacrifice liquidity.

That said, not all lenders offer them, and the interest rates can sometimes be slightly higher than standard deals. It’s important to discuss the pros and cons with a mortgage professional to determine whether this type of mortgage suits your financial goals.